Overpaid unemployment benefits top $14 billion

by CNN MONEYJuly 9, 2012

Don't spend that unemployment check too fast. The government might ask you to pay it back.

Overpayments are a rampant problem in the unemployment insurance system. The federal government and states overpaid an estimated $14 billion in benefits in fiscal 2011, or roughly 11% of all the jobless benefits paid out, according to reports from the U.S. Labor Department.

Of the states, Indiana was the worst offender, making more improper payments than it did correct ones.

Now, the U.S. Department of Labor and the states are in the midst of a massive effort to try to recoup some of their lost funds and avoid future overpayments.

Where does the money go?

The vast majority of unemployment benefits do go to people in need. In 2010 alone they helped keep 3.2 million Americans out of poverty, according to the Census Bureau.

But of the overpaid funds, most end up in the hands of three types of people: Those who aren't actively searching for a job, those who were fired or quit voluntarily, and those who continue to file claims even though they've returned to work. Any of those circumstances would make a person ineligible for benefits.

The overpayment typically results from an administrative error made either by the government, the employer, the worker or a combination of the three.

Related: 8 unemployment scams

In much rarer situations, people deliberately defraud the system, using fake documents or identities. Common scams involve prison inmates, illegal immigrants or even the deceased.

Ryan Greminger, 36, of Richmond, Ind. collected unemployment benefits while serving two years in a county jail for a drug-related crime.

"It's not like some big scheme I thought of," he said. Greminger had been laid off from a factory in 2007 and was originally collecting unemployment benefits legally. After he landed in jail, another inmate urged him to keep filing the claims.

"I paid this guy $50 each time to have his girlfriend -- a woman I had never met -- file my unemployment claims."

Greminger said he knew it was wrong at the time, but he went along with the plan because he needed child support money for his fiancé and their four kids. Out of prison now, he's currently working to repay more than $14,000 to the state.

"I accept responsibility for what I did. It was wrong. It was a mistake," he said. "I'm paying for it now."

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